The recent sell-off has been swift and has taken equity markets lower throughout the world. Although it is difficult to pinpoint its exact trigger – rising inflation expectations are initially being identified as the culprit – we remain focused on executing our investment process and identifying attractive risk/reward opportunities in the market. At times like this, it is important to remember that volatility is part of investing and that market corrections do happen. It was our view that equities were expensive as we entered 2018 and this pull-back may be healthy in the context of a generally positive economy as it removes some “froth” from the market.
While volatile periods can be challenging, they provide us with an opportunity to deploy cash and reposition the portfolios. It is often during times of market stress when we find the best risk/reward opportunities, as the high-quality businesses in which we invest are often liquidated alongside the overall market. This is increasingly the case, as passive ETFs attract more asset flow. When panic grips investors and they push sell on their ETFs, the high-quality businesses we target in our investment process are indiscriminately liquidated. This gives us the opportunity to “high-grade” and reposition the portfolios to capture the best risk/reward for our clients by buying these companies at the right price.
As we high-grade and reposition our clients’ portfolios, our focus remains on avoiding a permanent impairment of capital. We do this by investing in high-quality businesses with durable competitive advantages that can compound value over time. At times, our process will lead us to avoiding the investment themes-du-jour like marijuana stocks and Bitcoin. We accept this and while there has been no shortage of these attention-grabbing headlines lately, we remain focused on the risk/reward and the potential downside of any investment we make. We will not jump into potentially dangerous momentum or sentiment-driven investments simply because others are doing it and believe our clients will be well served by this approach over the long term.
We remain focused on executing our investment process and are actively filtering through our coverage and watch lists for opportunities to deploy capital and optimize our portfolios. With our shopping lists in hand and buy prices set, we are ready and have been active as this market is presenting new opportunities.
Stay tuned for future blogs and podcasts where we will be providing additional insights into how the Cambridge process is actively working for clients during this period of volatility.
Geoff Scott, CFA, Institutional Portfolio Manager
This commentary is published by CI Investments Inc. It is provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this commentary is accurate at the time of publication. However, CI Investments Inc. cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. This commentary may contain forward-looking statements about the fund, its future performance, strategies or prospects, and possible future fund action. These statements reflect the portfolio managers’ current beliefs and are based on information currently available to them. Forward-looking statements are not guarantees of future performance. We caution you not to place undue reliance on these statements as a number of factors could cause actual events or results to differ materially from those expressed in any forward-looking statement, including economic, political and market changes and other developments. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Cambridge Global Asset Management is a division of CI Investments Inc. Certain funds associated with Cambridge Global Asset Management are sub-advised by CI Global Investments Inc., a firm registered with the U.S. Securities and Exchange Commission and an affiliate of CI Investments Inc. Certain portfolio managers of CI Global Investments Inc. are associated with Cambridge Global Asset Management.